The Central Bank of the UAE (CBUAE) and the National Bank of Ethiopia (NBE) have signed a landmark bilateral currency swap agreement, aiming to strengthen financial and commercial ties between the two nations. This strategic pact allows for the exchange of local currencies up to a nominal value of AED3bn ($817mn) and ETB46bn, facilitating cross-border transactions and liquidity provision.

Announced on July 16, the deal seeks to promote the use of domestic currencies in settling trade and investment transactions, reducing dependence on major reserve currencies. This initiative is expected to streamline financial operations and enhance economic integration between the Emirates and Ethiopia.

In a joint statement, the central banks emphasised the significance of the currency swap in bolstering financial and banking cooperation. Khaled Mohamed Balama, Governor of the UAE Central Bank, highlighted the potential for increased joint business opportunities in the financial and banking sectors. "This initiative will also pave the way for more joint business opportunities in the financial and banking sectors," he stated.

Mamo Mihretu, Governor of the National Bank of Ethiopia, echoed this sentiment, noting the agreement's role in providing crucial funding opportunities and diversifying Ethiopia's currency portfolio. "The currency swap arrangement provides an important funding opportunity for Ethiopia and helps diversify the range of currencies at its disposal to facilitate the growing volume of trade and investment transactions expected over the coming years," Mihretu said.

The agreement comes at a time of increasing trade between the UAE and Ethiopia. In 2022, the UAE's non-oil exports to Ethiopia reached $210.3mn, with significant activity in the pharmaceutical, chemicals, and food industries. The volume of trade between the two countries has been on a consistent upward trajectory since 2017, reflecting robust commercial ties.

Beyond trade, the UAE and Ethiopia cooperate in various sectors, including agriculture, finance, culture, tourism, government development, renewable energy, trade, investment, industry, and advanced technology. The currency swap is expected to further deepen these ties, facilitating sustainable development and mutual prosperity.

Alongside the currency swap, the two countries have signed two Memorandums of Understanding (MoUs) to enhance their financial systems' interoperability. These agreements establish a framework for using local currencies in cross-border transactions and linking their payment and messaging systems.

The central banks will interlink their instant payment systems, UAESWITCH and ETHSWITCH, ensuring seamless financial transactions. They will also collaborate on financial technology and central bank digital currencies, aligning with regulatory requirements of both nations.

The UAE's strategic financial support to Ethiopia, including a $3bn package in grants and investment provided in 2018, underscores the depth of their partnership. The recent agreements signal a continued commitment to enhancing economic resilience and cooperation.

As trade and investment between the UAE and Ethiopia continue to rise, this partnership will likely serve as a model for regional economic integration.